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how do I arrive at a SDE multiple I can have some confidence in?

A wood products company generating 100K in SDE; long lived relationship with customers, but no contracts. The business is asset light, no debt , and requires no specialized skills. 10yrs+ in business.

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Answers (2)
Andrew Rogerson
Rogerson Business Services
Certified Business Broker
Sacramento County, CA
Premium Broker

My suggestion would be to have a third party professional arrive at this figure for you or more importantly, provide you with a business valuation. Your question doesn't say whether you are a buyer or seller. Why does that matter? If your the buyer and the seller presents an SDE multiple they are not going to believe it. If you are the buyer and you present your multiple to the seller then they are not going to believe it. You should be able to get a Brokers Opinion of Value for about $750 or a USPAP compliant business valuation for about $2,000 prepared by a certified business appraiser.

Once you have a business valuation there are many more steps in the process of buying or selling a business. Arriving at an SDE multiple is such a small piece of data that by itself doesn't mean anything. Is the business growing or declining? Is there finance available to buy the business? If the business has a lease what does that look like? What are the skills of the seller and the buyer? And so it goes on.

Dec 7, 2009
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The BAF Group LLC

You cannot go with an SDE multiple, alone. You have to validate the SDE with other documentation, most notably Tax Returns. Then legitimize the entire deal with a pro forma projection that includes Debt Service and what you need to earn.

What is the competition like? If the Seller leaves the picture, does that provide the competition with an edge to steal the customers from you? What makes that company's way of doing business resilient enough to withstand the transition? And if it is asset light, how are you going to finance it? Is the Seller taking a note?

Dec 5, 2009